News Corp Q1: Weak Aust ad market, but 100,000 new subs YOY

• Foxtel subs up 6% YOY to 3.065m thanks to Kayo/Foxtel Now growth

News Corporation has reported financial results for the three months ended September 30, 2019, its Q1.

Commenting on the results, chief executive Robert Thomson said:

“In the first quarter of Fiscal Year 2020, News Corp showed strong growth at Dow Jones and higher revenues at Move, the operator of realtor.com, but the results were affected by pronounced currency headwinds, a particularly sluggish Australian economy and property market, and comparisons with a prior year in which there was a significant one-time revenue item.

“We are pleased to note tangible progress in our efforts to secure payment for our high-quality content from digital platforms, a global cause which News Corp has led for more than a decade. With the dominant platforms under intense regulatory scrutiny, there has been a fundamental shift in the content landscape, highlighted by Facebook’s decision to pay a significant premium for our premium journalism. This development establishes a precedent that changes the terms of trade and we expect a positive financial impact at our News and Information Services segment, beginning this fiscal year.”

During a conference call this morning, Thomson put a heavy emphasis on the work undertaken by News and the benefit all publishers are now getting from Facebook paying for content. “Other publishers around the world should feel free to send us a commission,” said Thomson.

“Our efforts to simplify the company continue apace. We are in active discussions about a sale of News America Marketing and also are reviewing the potential sale of Unruly. We are taking steps to reduce our sum of the parts discount, while investing in our digital businesses, to the benefit of all shareholders.”

The company reported fiscal 2020 first quarter total revenues of US$2.34 billion, 7% lower compared to $2.52 billion in the prior year period. The decline reflects an $84 million, or 3%, negative impact from foreign currency fluctuations and a $48 million, or 2%, negative impact from the absence of the net benefit related to News UK’s exit from the gaming partnership with Tabcorp for Sun Bets received in the prior year. The rest of the decline primarily reflects lower print-related advertising revenues at the News and Information Services segment, lower subscription revenues at Foxtel, continued pressure at REA Group due to challenges in the Australian housing market, and a difficult prior year comparison at the Book Publishing segment. Adjusted Revenues (which exclude the foreign currency impact, acquisitions and divestitures as defined in Note 2) declined 4%.

Financials for some of the Australian operations included:

News and Information services

Revenues in the quarter decreased $99 million, or 8%, as compared to the prior year, reflecting a $35 million, or 3%, negative impact from foreign currency fluctuations. Within the segment, Dow Jones revenues grew 6%, while revenues at News America Marketing and News Corp Australia declined 10% and 11%, respectively. Revenues at News UK declined 22%, primarily due to the absence of the $48 million net benefit related to the exit from the gaming partnership in the prior year. Adjusted Revenues for the segment decreased 5% compared to the prior year.

Advertising revenues declined 8% compared to the prior year, of which $15 million, or 3%, was related to the negative impact from foreign currency fluctuations. The remainder of the decline was driven by weakness in the print advertising market, primarily in Australia, and lower home delivered revenues, which include free-standing insert products, at News America Marketing.

Closing digital subscribers at News Corp Australia’s mastheads as of September 30, 2019 were 542,400, compared to 442,400 in the prior year (Source: Internal data).

Subscription Video Services

Revenues in the quarter decreased $51 million, or 9%, compared with the prior year, of which $34 million, or 6%, was due to the negative impact from foreign currency fluctuations. The remainder of the revenue decline was driven by the impact from lower broadcast subscribers and changes in the subscriber package mix, partially offset by higher revenues from Foxtel’s OTT products, Kayo and Foxtel Now. Adjusted Revenues for the segment decreased 3% compared to the prior year.

As of September 30, 2019, Foxtel’s total closing subscribers were 3.065 million, an increase of 6% compared to the prior year, primarily due to the launch of Kayo and modest subscriber growth at Foxtel Now, partially offset by lower broadcast subscribers. 2.326 million of the total closing subscribers were broadcast and commercial subscribers, and the remainder consisted of Foxtel Now and Kayo subscribers. As of September 30, 2019, there were 430,000 Kayo subscribers, of which 364,000 were paying subscribers, and 385,000 Foxtel Now subscribers, of which 375,000 were paying subscribers. As of November 5th, there were 402,000 paying Kayo subscribers. Broadcast subscriber churn in the quarter was 14.4% compared to 12.9% in the prior year, reflecting the impact of the price increase implemented in October 2018 as well as increased volume of churn from lower-value customers on expiring contracts, and was lower than the prior quarter. Broadcast ARPU for the quarter increased 2% compared to the prior year to approximately A$78 (US$53).

In the quarter, revenues at REA Group decreased 14% to $149 million from $173 million in the prior year, primarily due to lower revenues associated with weakness in listing volumes and fewer new project launches, the negative impact from foreign currency fluctuations and the extended duration of Premiere All listings.

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